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2022 (4) TMI 232 - AT - Income TaxRevision u/s 263 - capital gain on sale of leasehold rights - HELD THAT - From the various details furnished by the assessee, we find the assessee applied for purchase of plot on 30th March, 1996 and an amount was paid on 30th March, 1996. Further payment was made on 26th May, 1998 and the land was allotted to the assessee on 2nd January, 2004 but physical possession of land was given on 22.11.2015. The assessee acquired the leasehold rights by the lease deed on 4th February, 2016 and the sale of leasehold rights or agreement to sell was entered on 16th February, 2016. Therefore, these events, in our opinion, clearly show that the assessee has fully acquired the leasehold rights in the plot in the F.Y. 2003-04 and the assessee has also made complete payments for acquiring the plot rights in FY 2004-05. The assessee, after taking a conservative view computed the indexed cost of acquisition for F.Y. 2004-05, i.e., the year in which complete payments for acquiring the leasehold rights was made and the assessee having sold such rights after holding for more than 36 months, computed the long-term capital gains in terms of the provisions of section 2(29A) of the Act. We find, in the case of CIT vs. Frick India Limited 2014 (9) TMI 394 - DELHI HIGH COURT has held that the expression 'held by the Assessee' means the date from which the assessee acquired right to hold the asset In the present case, the assessee was allotted a plot of land under a reallocation scheme by the President of India on 02.01.2004 and the leasehold rights have been sold on 16.02.2016. The assessee has made complete payment for acquiring these rights before the end of F.Y. 2004-05. Therefore, the said decision, in our opinion is distinguishable and not applicable to the facts of the present case. In view of the above discussion, we are of the considered opinion that the order passed by the AO may be prejudicial to the interest of the Revenue, but cannot be held to be erroneous. It is the settled proposition of law that for invoking the provisions of section 263 of the IT Act, the twin conditions, namely, (a) the order must be erroneous and (b) it must be prejudicial to the interest of the Revenue must be satisfied as held by the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME COURT Since we have already held in the preceding paragraph that the AO has conducted proper enquiry and has taken a plausible view, therefore, the order cannot be held to be erroneous, therefore, in absence of fulfillment of twin conditions, ld. PCIT is not justified in invoking the jurisdiction u/s 263 of the IT Act, 1961. We, therefore, quash the section 263 proceedings initiated by ld. PCIT and the grounds raised by the assessee are allowed.
Issues Involved:
1. Invocation of Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT). 2. Classification of capital gain as long-term or short-term. 3. Applicability of Section 50C of the Income Tax Act on the sale of leasehold rights. Issue-wise Detailed Analysis: 1. Invocation of Section 263 of the Income Tax Act by the PCIT: The PCIT invoked Section 263, contending that the assessment order was erroneous and prejudicial to the interests of the Revenue due to lack of proper inquiry and verification by the Assessing Officer (AO). The AO had accepted the assessee's computation of capital gains and sale consideration without substituting the stamp duty value or referring to the Department Valuation Officer (DVO) under Section 50C. The Tribunal found that the AO had conducted detailed inquiries, including issuing questionnaires and receiving multiple replies from the assessee. The AO's decision to accept the sale consideration without invoking Section 50C was based on a plausible view, supported by legal precedents. Therefore, the Tribunal held that the PCIT's assumption of jurisdiction under Section 263 was not justified as the AO had taken a reasonable view after proper inquiry. 2. Classification of Capital Gain as Long-term or Short-term: The PCIT argued that the capital gain should be treated as short-term since the holding period was less than 36 months. The assessee contended that the leasehold rights were acquired in the financial year 2004-05, and the holding period should be counted from the date of allotment, making it a long-term capital asset. The Tribunal agreed with the assessee, citing multiple judicial decisions, including the Hon'ble Delhi High Court's ruling in CIT vs. Frick India Limited, which held that the period of holding should be counted from the date of allotment when the assessee acquired beneficial interest. The Tribunal concluded that the leasehold rights were long-term capital assets, as the assessee had held them for more than 36 months. 3. Applicability of Section 50C of the Income Tax Act on the Sale of Leasehold Rights: The PCIT invoked Section 50C, arguing that the sale consideration should be substituted with the stamp duty value. The assessee argued that Section 50C applies only to the transfer of land or building, not leasehold rights, and that the sale was made under restrictive conditions specified in the lease deed. The Tribunal found merit in the assessee's argument, stating that Section 50C's deeming provisions apply only to land or building transfers. The Tribunal also noted that the leasehold rights were transferred through an unregistered agreement to sell, making the transfer invalid under the Transfer of Property Act. Therefore, the Tribunal held that Section 50C was not applicable, and the AO's decision to accept the actual sale consideration was reasonable. Conclusion: The Tribunal quashed the Section 263 proceedings initiated by the PCIT, holding that the AO had conducted proper inquiries and taken a plausible view. The assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The appeal filed by the assessee was allowed.
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